Moody's ratings lowered the U.S. credit rating from AAA to AA1, leaving the U.S. government without the highest score in any major rating agency.

Moody noted that the rise in debt-to-interest payment ratios is “much higher than sovereignty with similar ratings.”

"The continuous U.S. government and Congress failed to reach a consensus on a trend to reverse a huge annual fiscal deficit and growing interest costs," Moody's said in a press release on Friday. "U.S. fiscal performance could deteriorate in its own past and other highly rated sovereigns."

For U.S. consumers, lower ratings may lead to higher borrowing costs.

Fitch Ratings has been demoted from AAA to AA+ in 2023. Standard & Poor lowered its U.S. credit rating in 2011.

Moody's cites federal debt, which has "rashed sharply" due to ongoing fiscal deficits, is due to increased federal spending and reduced government revenue through tax cuts.

The agency noted that the Republican draft tax bill would add about $4 trillion over the next decade, saying it did not believe the proposal would lead to a “multiple-year reduction in mandatory spending and deficits.”

The federal deficit is expected to expand from 6.4% of GDP in 2024 to 9% by 2035, driven by increased debt payments, increased entitlement spending and relatively low income generation.

The agency also changed its outlook from negative to stable to reflect “balanced risks at AA1” and noted that the country retained “special credit advantages such as the size, resilience and economy, resilience and vitality” and the role of the US dollar as a global reserve currency.

Despite policy uncertainty in recent months, Moody's expects the U.S. to continue its "very effective monetary policy history" led by the independent Federal Reserve.

Lower ratings can increase Treasury bond interest rates, increase government borrowing costs and further increase federal debt. As USA Today previously reported, the lower credit rating can drive consumers’ borrowing costs because fiscal bonds affect interest rates on assets such as 30-year fixed mortgages and corporate bonds.

"For investors, this downgrade may be more symbolic than a viable downgrade. After the announcement, Treasury yields did not rise substantially and demand for U.S. debt remains strong," said James Humphries, a board partner at Indianapolis Mindset Wealth Management. “However, the long-term impact is clear: sustained fiscal expansion without reliable and stable debt efforts could ultimately impact borrowing costs and economic flexibility.”